Permian Wells Linked To Accused Fraudsters To Be Auctioned

Wells owned by a company the government accused of defrauding 121 investors are being auctioned by a court-appointed receiver attempting to recover money.

A federal court has ordered the sale of a portfolio of oil and gas royalty and other interests consisting of about 9,000 producing properties and about 1,200 potential upside properties. Mineral leases are located in numerous Texas counties, along with 16 other states.

The sale stems from a Securities and Exchange Commission (SEC) case accusing Vendetta Royalty Partners Ltd. of securities fraud and running a Ponzi scheme involving purported investments in oil and gas projects. The SEC said the enterprise brought in nearly $34 million.

EnergyNet is handling the auction of the 258-well package in Crockett and Schleicher counties, Texas, in the Permian Basin. In the past 12 months, average 8/8ths production was 6,239 cubic feet per day and 39 barrels of oil per day. During the same period, average net income has been $8,556 per month.

The assets are operated by Approach Operating LLC. Properties will be sold through sealed-bid auctions on EnergyNet.com. Due diligence information is available from EnergyNet.com on a “per auction” basis as lots are activated on the website.

In December, the SEC accused Robert A. Helms and Janniece S. Kaelin, among others, of misleading investors about their experience in the oil and gas industry while pitching “supposed purchases of oil and gas royalty interests.”

The promised return: up to 300% to 500% on investments in five to seven years.

The SEC said Vendetta was an exercise in deceit. Helms and Kaelin have denied the accusations against them.

The government said nearly all of the money raised for oil and gas investments was used to make Ponzi payments and cover various personal and business expenses. About 10% of the investment money was used for oil and gas projects, the SEC contended.

“Helms and Kaelin pretended to be in the oil and gas business when they were really in the business of fattening their own wallets,” said David R. Woodcock, director of the SEC’s Fort Worth Regional Office. “They lied to investors about the use of offering proceeds, spent investor funds on personal expenses, and made Ponzi payments to give investors the false impression that they were earning returns in a profitable venture.”

Helms and Kaelin, who worked in Austin, misled investors about important matters including their business background and industry reputation, SEC documents said.

What They Didn’t Say

They failed to disclose the existence of several matters of litigation against them and companies they controlled in SEC filings, according to investigators. In December 2011, for instance, a private party sued, saying that the pair committed fraud by purporting to sell mineral interests that they didn’t own for $1.2 million, according to court documents.

In office tours in Austin, Vendetta introduced potential investors to its financial analyst, who was represented to have a degree, court records showed. However, the analyst was actually a student at the University of Texas who had not graduated. When the student objected about how he was being portrayed, he was told he would be demoted if he revealed his lack of a degree, court documents said.

Some investment offering documents also touted Helms’ oil and gas experience. The documents misrepresent that he had “worked with various mineral companies over the last 10 years advising management on issues involving the acquisition and management of royalty interests, mineral properties and related legal and financial issues,” according to the government.

In fact, Helms’ oil and gas experience came almost entirely from operating Vendetta Royalty Partners and its affiliated or predecessor companies, the SEC said.

Management also misrepresented the performance of the royalty investments and failed to inform investors that Vendetta was in imminent bank loan default, court documents said. The company ultimately defaulted, the SEC’s complaint said.

The SEC was assisted by the Federal Bureau of Investigation, U.S. Secret Service and Texas State Securities Board.